Gap Inc. earnings suffer on higher cost of goods

SAN FRANCISCO — The rising cost of goods and a challenging economic environment took its toll on Gap Inc.'s first-quarter sales and earnings. Gap Inc. reported that net income for the first quarter decreased 23% to $233 million compared with $302 million for the first quarter last year. First quarter diluted earnings per share was 40 cents.

The company reported that net sales decreased 1% to $3.30 billion. Comparable sales, which includes associated comparable online sales, decreased 3%. The 3% comparable-store sales decline included a 3% decrease at Gap North America, a 1% decrease at Banana Republic North America, and a 2% decrease at Old Navy North America.

Because of the rising costs of goods Gap Inc. has revised its full year guidance. The company said it now expects product costs per unit to be up about 20% in the back half of the year, which will more than outweigh retail price increases. The company has revised guidance for fiscal year 2011 diluted earnings per share to be in the range of $1.40 to $1.50.

“While we acknowledge that costing pressure is impacting our business, we’re working hard to navigate this short-term macro challenge to our profitability in the current fiscal year,” said Glenn Murphy, chairman and CEO of Gap Inc. “That said, our strategy remains the same – to deliver consistent, steady growth in North America while investing in our long-term global initiatives, especially in online and international.”

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